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Monopolistic competition and optimum product diversity under firm heterogeneity

Morrow, John and Dhingra, Swati (2019) Monopolistic competition and optimum product diversity under firm heterogeneity. Journal of Political Economy, 127 (1). 196 - 232. ISSN 0022-3808

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Identification Number: 10.1086/700732


Empirical work has drawn attention to the high degree of productivity differences within industries and their role in resource allocation. This paper examines the allocational efficiency of such markets. Productivity differences introduce two new margins of potential inefficiency: selection of the right distribution of firms and allocation of the right quantities across firms. We show that these considerations affect welfare and policy analysis, and market power across firms leads to distortions in resource allocation. Demand-side elasticities determine how resources are misallocated and when increased competition from market expansion provides welfare gains.

Item Type: Article
Official URL:
Additional Information: © 2014 The University of Chicago Press
Divisions: Economics
Centre for Economic Performance
Subjects: H Social Sciences > HB Economic Theory
Date Deposited: 27 Aug 2014 09:28
Last Modified: 20 Oct 2021 03:19
Projects: PTDC/EGE-ECO/122115/2010
Funders: Fundacao para a Ciencia e a Tecnologia (FCT)

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